Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2004:9: Merger Policy with Alternative Mergers and Efficiency Gains

Carlos Razo ()
Additional contact information
Carlos Razo: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: This paper models the behaviour of a Competition Authority (CA) that takes into consideration alternative future mergers when deciding whether to approve a current merger notification. The result is a more stringent CA that demands higher merger-efficiencies than the ones needed to restore pre-merger welfare, opening the possibility of challenging a merger that reduces prices. However, in the absence of entry and exit, a merger policy that considers alternative mergers is never consumer welfare decreasing. Additionally, CA’s merger-efficiencies expectations play an important role in the stance the CA adopts (tougher or laxer). Lastly, the paper suggests that even when alternative mergers could have positive effects on consumer welfare, CAs should exercise caution in adopting such merger policy given the significant side-effects.

Keywords: competition policy; mergers; efficiency gains

JEL-codes: K21; L40; L41

24 pages, August 20, 2004

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